The entitlement culture cranks up a gear

THE House of Representatives has passed a bill abolishing the cap on how much the Commonwealth will pay to workers who lose their jobs when companies collapse. In so doing, the Gillard government has converted what should be an emergency safety net for workers into an almost limitless guarantee for business. Where are the checks and balances in all this and who is going to pay for it?

The General Employee Entitlements Redundancy Scheme (GEERS) is meant to be a government-funded scheme of last resort. It covers the statutory entitlements owed to a worker when a company has nothing left in the kitty: entitlements such as unpaid wages, annual leave and long-service leave. It also provides workers with a payment for the inconvenience of being made redundant, a payment that in the real world helps tide someone over until they can get a new job.

The scheme had its genesis in the 1999 collapse of National Textiles, a company chaired by the brother of then-prime minister John Howard. In a deal that attracted its fair share of criticism, the Howard government agreed to pay $7 million of $11 million owed to National Textiles workers. GEERS emerged in 2001 after Ansett Airlines collapsed, leaving thousands of workers owed hundreds of millions of dollars.

Payouts for the redundancy element of GEERS originally were capped at a sum equal to eight weeks' pay, irrespective of the years of service. In 2006, after some criticism in 2004 from the Australian Industrial Relations Commission, the Howard government lifted the redundancy cap to 16 weeks. Now the Gillard government has amended GEERS to provide redundancy pay of four weeks for every year of service; there is no maximum. In other words, someone who has worked full time for, say, 13 years could receive, at taxpayers' expense, a redundancy sum equal to a year's wages.

There are some worrying aspects to this. The first is that it throws much uncertainty on the potential liability that could be incurred by the Commonwealth, and it does so when the budget is already under strain. The Australian Industry Group has suggested if just one big company failed, the call on the government could be enormous.

Secondly, the Commonwealth's track record for recoveries - the amount it has been able to claw back from company liquidations - has been poor. As The Age reported in July, payments under the limited GEERS system have increased fourfold in the past five years, much of this due to the succession of business failures after the global financial crisis. Since 2001, workers have received more than $1 billion under GEERS but the Commonwealth has retrieved less than $200 million from the liquidations. Worse, some liquidators believe GEERS has become institutionalised; they claim many small and medium-sized businesses are walking away from statutory obligations.

While The Age empathises with the plight of those who, through no fault of their own, lose their job and are left bereft of a regular income, we oppose a system that distorts a safety net into a proxy for companies' responsibilities.

The Coalition opposed the amendments, arguing the uncapped redundancy will become a bargaining chip, or ''new high bar'', for unions in enterprise negotiations; that four weeks per year of service will become the minimum in all enterprise awards. The unions might try it, but it is up to business to argue back.

GEERS retains strong support from unions, business and both sides of government. It also has the support of The Age, as a safety net. Far preferable, though, would have been to lift the redundancy cap, not made it limitless. Still missing, of course, is any evidence that the government is throwing its weight behind liquidators so that they can get on with the difficult task of pursuing miscreant directors who abandon such obligations.